The Cross‐Section of Expected Stock Returns

ABSTRACT

Two easily measured variables, size and book‐to‐market equity, combine to capture the cross‐sectional variation in average
stock returns associated with market β, size, leverage, book‐to‐market equity, and earnings‐price ratios. Moreover, when the
tests allow for variation in β that is unrelated to size, the relation between market β and average return is flat, even when
β is the only explanatory variable.